It was a plush affair for the mid-80s, an era when record sales had already begun to decline, and when music writers had already begun to reminisce about the good old glory days when lavish promotional parties and international flights were commonplace. On 27 August 1986, the Warner label hosted a major event at the Mayfair Theatre in London to mark the release of Paul Simon's adventurous new album, Graceland. We were given lunch, listened to the new work, and presented with a package that included a cassette, an LP and a CD. And then we were invited to question Simon himself (a "small, vulnerable-looking and boyish" figure, as I noted at the time) about the project.

This is when the PRs must have become worried, for the questions gradually switched from the flattering to the political. The album was naturally well-received – after all, it was a brave new departure by a bestselling singer-songwriter who had already shown a fascination for global styles earlier in his career by recording in Jamaica (a rare move back in the Seventies) and working with South American musicians. This time, he had been even bolder, recording several of the tracks in South Africa with black musicians who were then little-known in the west. But as Simon knew all too well, this was a highly controversial move, because South Africa was still a white-run apartheid state, and many other western musicians were playing an active role in trying to bring the system to an end.

There had already been a batch of songs attacking the brutality of apartheid, from Stevie Wonder's It's Wrong to Peter Gabriels' powerful Biko and Jerry Dammers and the Special AKA's classic protest song, (Free) Nelson Mandela. And there were campaigns to stop musicians performing in South Africa, with the likes of Dylan, Springsteen and Bono joining Steve Van Zandt in the recording of Sun City, attacking those who performed in the South African entertainment complex in the so-called "homeland" of Bophuthatswana.

Those who did so were accused of breaking a UN-approved cultural boycott, which had been in effect since December 1980. After all, the wording of Resolution 35/206 was surely clear: "The United Nations General Assembly request all states to prevent all cultural, academic, sporting and other exchanges with South Africa. Appeals to writers, artists, musicians and other personalities to boycott South Africa. Urges all academic and cultural institutions to terminate all links with South Africa."

The resolution was enthusiastically endorsed by the Artists Against Apartheid movement, and offending musicians including Rod Stewart and Queen, who had been attracted by generous fees to play at Sun City, all promised not to return. Simon's reasons for working in the country were very different, but surely he had still broken the boycott?

That was the question he would inevitably be asked at the Mayfair launch, but he clearly wasn't happy about it. He had no regrets, he told us, because he hadn't gone there to perform – indeed, he had turned down a lucrative request to play Sun City. But after hearing Gumboots Accordion Jive Vol 2, a bootleg tape of South African musicians, he was eager that "such rich music" should be introduced to the rest of the world.

That, surely, didn't answer the question, and so I then asked him whether he had taken any advice before making the decision to go. He replied that he had checked with the veteran civil rights campaigner Harry Belafonte, who "had mixed feelings ... it was the first time that he had dealt with someone not going to perform but to bring back the music". It later became clear that Belafonte had told Simon to "go and talk to the ANC", advice he clearly didn't take.

When I pressed him further, he suddenly came out with a quite remarkable outburst, explaining his view on music and politics.

"Personally, I feel I'm with the musicians," he said. "I'm with the artists. I didn't ask the permission of the ANC. I didn't ask permission of Buthelezi, or Desmond Tutu, or the Pretoria government. And to tell you the truth, I have a feeling that when there are radical transfers of power on either the left or the right, the artists always get screwed. The guys with the guns say, 'This is important', and the guys with guitars don't have a chance." I remember him looking round the hall as he added: "I haven't said that before."

The result, predictably enough, was that the row rapidly escalated. Dammers, then heavily involved with Artists Against Apartheid, was among those to react furiously, asking: "Who does he think he is? He's helping maybe 30 people and he's damaging solidarity over sanctions. He thinks he's helping the cause of freedom, but he's naive. He's doing far more harm than good."

Further twists followed in the months after Graceland was released. In early 1987, Simon announced that he had been cleared by the ANC, but Dali Tambo, the founder of Artists Against Apartheid and son of ANC president Oliver Tambo, replied by saying that no such clearance had been given.

Then the PR battle swung the other way, thanks not to the ANC, but to leading black South African musicians who had been closely associated with the anti-apartheid struggle. Hugh Masekela, exiled from South Africa because of his attacks on the apartheid regime, had known Simon since the 60s; he had appeared alongside Simon and Garfunkel at the 1967 Monterey Pop Festival. He suggested that they tour together, in a show that would include an array of black South African musicians, including the country's finest female singer Miriam Makeba, and that songs from Graceland should be performed alongside black South African music.

It was an inspired idea, and when I went along to the rehearsals in a former warehouse near London's Pentonville prison, it became instantly clear that this was going to be something special. In one room, Masekela was rehearsing a female chorus that included Makeba, his former wife, while in another studio, the 10-man vocal team Ladysmith Black Mambazo were practisising their spine-chilling harmonies and dance steps, backed by members of another South African band, Stimela, while Simon watched and made suggestions.

Masekela, always an outspoken rebel, explained why he was co-operating with Simon and not condemning him. He was delighted that the Graceland tour was bringing black South African musicians together and giving their music global exposure. "South African music has been in limbo because of apartheid," he told me. "Exile and the laws have parted us and caused a lack of growth. If we'd been free and together all these years, who knows what we could have done?"

All the same, when the show reached the Royal Albert Hall, the protesters outside included Dammers, Paul Weller and Billy Bragg. The latter has since told me: "It pained me to be part of that because I'm a Paul Simon fan, but he was on the wrong side of the argument despite his good intentions."

There's great music in the film, of course, and emotional scenes as Simon is reunited with those who performed with him on their world tour, 25 years ago. There are excellent interviews with the thoughtful Ray Phiri, leader of Stimela, discussing his life under apartheid, and what the Graceland experience meant to him. And there's praise for Simon from other South African musicians who found global success because of their involvement with the album or the tour. Joseph Shabalala, leader of Ladysmith Black Mambazo, was clearly delighted to see him – and understandably so, because his group haven't stopped touring in the west since Graceland was released.

Nonetheless, it should be remembered that not all black South African musicians felt the same way. Last month, I was sent an email by David Defries, who used to play with the late Jonas Gwangwa, the celebrated South African trombonist who led the ANC's cultural group Amandla, managed by Tambo. Defries told me how Gwangwa reacted when it was suggested to him that Simon should be praised for bringing black South African music to the world stage: "So, it has taken another white man to discover my people?"

The most remarkable sequence in the film sees Simon meet Tambo, who now lives back in South Africa, for the first time. Both argue their positions in a genial but forceful fashion; Tambo explains the boycott as being "all or nothing – we couldn't allow Simon, any more than a tank coming in", while Simon repeats his arguments about being on the side of the artists, as opposed to the politicians. At the end they make their peace, and there is a handshake that should put an end at last to the controversy.

What do I think, having watched this lengthy saga unfold? Of course it would have been better if there had been no row, if Simon had taken Belafonte's advice and argued his case and his motives with Tambo and the ANC, and they then jointly found a solution. Recording the South African musicians outside the country (as was the case with Ladysmith's recording of Homeless) might have been a way out, even if this could arguably have also broken the boycott.

What is most impressive is that Simon allowed Berlinger to make such an intriguing film, including far more criticism than most celebrities would tolerate, and that he had the guts to argue face to face with Tambo. I'm looking forward to the Graceland revival show.

Under African Skies is showing on the opening day of the London Sundance Festival on 26 April, and then at selected cinemas. Paul Simon performs Graceland at London's Hyde Park on 15 July.